Mortgage Rules to Change Again?

[bizaro86]

http://www.financialpost.com/personal-finance/Tougher+condo+mortgage+laws/4105580/story.html



This was on the front page of today's National Post. Basically, "Sources" (aka a gov't trial balloon) are saying that they might include 100% of condo fees in the TDS calculation instead of 50%, lower amortizations to 30 years from 25 years, and increase down payments for personal residences from 5% to 6-7%.



One question I have, is would the increase penalty for condo fees apply to mortgages from charter banks that aren't insured by CMHC?



That's the only one that will impact me personally. If they do go ahead with this, I'd suspect it to be a minor net positive for most investors. Prices might go down a bit (but that makes it cheaper to buy) but there should be more renters around as people take longer to save up a downpayment.



Michael

 

[Thomas Beyer]

These proposed changes are a step in the right direction .. But do not go far enough !




Far too many people get far too big a home too early in their life with far too much debt !




10% down would be a good next step !
A 95% or 93% mortgage plus CMHC premiums are still essentially 100% levered properties .. At tax payers expense !!
It is like renting .. From the bank .., but with far more serious consequences if default !




CMHC doesn't insure the borrower ! It insures the loan to the bank ! It is really a bank risk reduction tool enslaving too many folks to too much debt, too early in their lives .. With potentially disastrous consequences on their credit and rest of their fledgling life if s.th. say a job loss happens !!




More savings please ... More cash down ... then a loan !!

 

[bizaro86]

[quote user=ThomasBeyer]10% down would be a good next step


I would be in favour of this as well.



Michael

 

[countryproperty]

For most people a large mortgage payment alone is NOT the problem, it is all the consumer debt (credit cards) on top of that. The government is trying to regulate people out of buying a home.



When people have a home and pay it off it creates a level of financial security that is hard to beat. It becomes a forces saving plan, it can be sold in retirement and provide a decent income. It can be passed on and provide a good stable start to the next generation. It can actually help people from accumulating so much consumer debt because they have a mortgage payment.



I find that without a mortgage people have more liquid cash and they tend to spend it.



If the government can find a way to regulate CC and car payment debt and get more people into there own home you will see a much more stable economy.



Here are a few suggestions...



limit the number of CC's a person can own (I know very controversial)

limit the maximum interest that can be charged.

stricter, much stricter regulations for car loans



Just an idea

Mark

 

[kboughen]

Banks issuing a mortgage that is not CMHC do not have to follow the CMHC guidelines. However, when a mortgage is not CMHC insured, it is a greater risk for the Bank and therefore if CMHC tightened their rules, the Bank is likely to tighten their non CMHC rules.



If guidelines are tightened on owner occupied, you can be sure they will apply to investment properties and would therefore impact investment purchases;

• Investors purchasing condos would find it more difficult to qualify if Condo Fees were factored at 100%
  
  
  Investors would also find it more difficult to qualify with shorter amortizations (and have less cash flow)

 

[Thomas Beyer]

[quote user=kboughen].. Investors purchasing condos would find it more difficult to qualify if Condo Fees were factored at 100% ..


it befuddles me why the true cost of ownership up to this point was NOT factored in, i.e. why only 50% of condo fees would be counted as "cost" ? That didn't make any sense !

 

[Thomas Beyer]

[quote user=countryproperty]The government is trying to regulate people out of buying a home.

..



If the government can find a way to regulate CC and car payment debt


Somehow I doubt the government wants people out of buying homes. It wants to reduce the rate of debt default, at tax payers expenses - as CMHC is a government owned crown corporation ! The rate of default is high when debt payments are close to, or exceed, disposable income.



I 100% agree that car loans or CC debt is by far the most serious problem, i.e. debt on depreciating assets (as opposed to a home, which one average, is appreciating). But, the government is not on the hook for such debt ! With a CMHC insured, unpaid mortgage, it is !



I think the recent government mandated change to CC statement, namely: You will pay your debt of in XX years and YY months if you pay only the minimum payment is a good step in the right direction !



Certainly cars cost a lot, and with depreciation, lease payments, insurance, cost of gas and some maintenance even a very modest car that costs perhaps $25,000 new costs you easily $700/month .. so yes: far too many folks buy far too fancy a car with far too much debt. [I assume you drive 20K/year or 100,000 km in 5 years which would cost about 42.5 cents per km: $15,000 depreciation plus $10,000 in gas plus $6000 in insurance and licensing fees, $4000 in maintenance/new tires/oil .. so $35,000 plus $7500 in interest (assuming a 6% loan cost) for a total of about $42,500 or about $8500/year i.e. about $700/month]



Certainly, many CC issuers, owned by large institutions, are very irresponsible for issuing those cards especially for those who will likely default and pat 22%+ interest !



However, one needs to give individuals the personal freedom to screw up, too ! I think bike helmets are silly as are many laws like "no smoking in many public places like beaches" ... the more rules the more stifled a society and the more it costs to patrol it !! more rules = more taxes usually !! A balance has to be struck !

 

[kboughen]

"it befuddles me why the true cost of ownership up to this point was NOT
factored in, i.e. why only 50% of condo fees would be counted as "cost" ?
That didn't make any sense !"



I think 50% of Condo Fees is reasonable. When I buy a condo town house, my condo fees always include fire insurance on the building, water and sewer, roof repair/replacement, exterior building maintenance, driveway repair/replacement and landscaping. They sometimes also include window replacement/maintenance and cable Tv. All these items would be an extra expense/liability if the same town house was freehold.

 

[EdRenkema]

[quote user=kboughen]"it befuddles me why the true cost of ownership up to this point was NOT
factored in, i.e. why only 50% of condo fees would be counted as "cost" ?
That didn't make any sense !"



I think 50% of Condo Fees is reasonable. When I buy a condo town house, my condo fees always include fire insurance on the building, water and sewer, roof repair/replacement, exterior building maintenance, driveway repair/replacement and landscaping. They sometimes also include window replacement/maintenance and cable Tv. All these items would be an extra expense/liability if the same town house was freehold.


I think Kevin is bang on. For an investment or a personal consumption the condo fee immediately creates a fund (or it should) for ongoing maintenance & insurance costs. Its up to the buyer to conduct their DD & confirm those fees are reasonable & the complex is managed appropriately. I'm not sure how the powers that be think this will improve the current debt situation. Consumer debt is the real culprit but I'm opposed to more gov't control in what already is an over regulated society.

I won't even get started on bike helmets, but I digress.

Sure make the lending & qualifying criteria stricter but ultimately the consumer needs to be educated on what is good debt vs bad debt. The consumer also needs to understand that debts must eventually be repaid.

I quote the former governer of Minnesota Jesse Ventura on student loans "Well I figger anybody smart enough ta get thru school oughta be smart enough ta figger out how ta pay for it"